Microsoft spends $1.7 billion to make Surface a hit

While interest in Microsoft’s Surface Pro 3 tablet is increasing it seems that the growth has come at an enormous cost. Computerworld found that Microsoft revealed in an 8-K statement filed with the Securities and Exchange Commission this week that it has lost $1.7 billion on its Surface line of tablets so far, which is nearly double the $900 million write down that Microsoft took last year on unsold Surface inventory.

Microsoft’s operating income last quarter was $6.48 billion and its earnings per share only narrowly missed Wall Street expectations after posting better-than-expected earnings the quarter before. Things could have been a lot worse. Microsoft to launch the smaller-screen Surface Mini alongside the Surface Pro 3 in May, but changed its mind at the last moment, reportedly because it feared the tablet would not sell well.

Most of the cash Microsoft is spending is on the manufacturing expenses for the Surface Pro 3 line, which Microsoft started selling, but only in limited quantities, near the end of quarter. Although most sales would presumably be recorded in the following quarters, the initial production costs would have been booked into the June period. The fully-fleshed-out line only reached retail on Aug. 1.

If Microsoft had not created a Surface and invested half the money on a dead cert at Derby, it could still be quids in. Funny thing is that if Steve Ballmer had told shareholders he lost millions on a horse they would get upset, but Wall Street is ok with you wasting cash on a product which is too expensive for anyone to afford.